A Tech Difference on Patent Reform?

UPDATED: WASHINGTON -- As Microsoft's Steve Ballmer and other top technology executives worked the halls of Congress today championing patent reform, one smaller tech firm and the U.S. Patent and Trademark Office took a more moderate stance.

Bruce Bernstein of InterDigital , a Pennsylvania wireless platform designer and developer, told the Senate Judiciary Committee that the powerhouses of the IT industry are not representing the full range of technology's view of patent reform. In fact, Bernstein said, tech reform leaders are less interested in patent reform than they are in lowering the cost of patent infringement.

"Critics of our patent system are now advocating legislative measures that would create additional and more expansive opportunities to invalidate an issued patent," Bernstein said. "The premise of these so-called reforms is that the patent system is broken and that patent plaintiffs are predominately speculators who abuse the system to extract large, inflated settlements."

Bernstein added, "Claims of this type are grossly exaggerated and dangerous in their potential impact on our patent system."

Current legislation before the House and Senate would allow reviews of patents after they have been granted, creating a so-called "second window" to challenge the validity of a patent. The bills narrow the definition of willful infringement, which brings treble damages in infringement lawsuits.

The legislation also calls for apportioning infringement damages to the economic value of the patent's contribution to an overall product. Currently, damages are based on the entire market value of the product.

"Despite media claims to the contrary, the IT industry is absolutely not united in its support for mandatory apportionment, post-grant opposition or other measures that would fundamentally weaken rights," Bernstein said.

While Bernstein testified, a lobbying effort led by the Business Software Alliance (BSA) brought Ballmer and others to Washington to meet with policy makers. The group issued a statement supporting the patent reform legislation, claiming the bills are "essential in helping the United States maintain its position as the world's leading technology innovator."

Bernstein, though, said large tech companies are using patent reform to justify legislation that would limit their liability when they infringe third-party patent rights. Meaningful damages, he said, are often the only leverage that a small patentee possesses to secure a licensing agreement with large corporations.

"It is important to note that InterDigital's concerns are shared by a large and growing number of innovative firms, universities and researchers within a broad range of industry sectors, including the technology field we inhabit," Bernstein said.

In the aftermath of the Supreme Court's recent eBay decision that said permanent injunctions are not mandatory in infringement judgments, Bernstein said the proposed patent-reform legislation "would be the final nail in the coffin" for small companies that depend on patent protection.

But Mary Doyle, senior vice president and general counsel for Palm, told the panel the proposed reform bills would go a long way in reducing nuisance lawsuits by patent-holding companies. Doyle said Palm routinely receives vaguely worded patent assertions that amount to an invitation to license or face litigation.

"The settlement calculus derived from the high cost of litigation and the risk of an unprecedented damages award, not to mention an award of treble damages, is clearly weighted in favor of the patent holder," Doyle said. "It should not be surprising, then, that an industry of patent speculators has grown up almost overnight."

Doyle said the letters are often coupled with the "thwack" factor, named for the sound a large stack of patents makes when it hits the negotiation table.

"The thwack factor is credited with discouraging the recipient of a letter from undertaking the not-insubstantial cost to do an infringement and invalidity analysis all because once one patent is knocked out of contention, another patent lines up to take its place," Doyle said.

Jon Dudas, director of the U.S. Patent and Trademark Office (USPTO), told the panel the Bush administration generally supports the reform provisions in the Senate and House bills, particularly post-grant reviews.

Noting that "full-blown patent litigation" can cost as much as $5 million and take several years, Dudas said the proposal could serve as a "meaningful alternative" to litigation. However, he warned, without a budget authorization increase, "We might not have the resources."

Although Dudas did not touch on the subject of apportioned judgments or narrowing the definition of willful infringement in his oral testimony before the committee, in his written statement he wrote both issues needs further evaluation.

"While the appropriateness of damages awards in a number of patent cases may be subject of debate," Dudas wrote, "the USPTO does not believe that a sufficient case has been made for a legislative provision to codify or emphasize any one or more factors that a court must apply when determining reasonable royalty rates."

Dudas also stated in his written testimony that modernization efforts should avoid "perverse incentives" that might make infringement simply a "cost of doing business."

"While not the only deterrent to patent infringement, the possibility of treble damages provides an important and substantial obstacle -- more than might be seriously considered in a practical business calculus," he wrote.

Both the Senate Judiciary Committee and the House Judiciary Committee are expected to vote on the patent reform bills sometime this summer.

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